Unraveling the 2% interest-support package's stalemate

According to the report on Resolution 43 implementation by the National Assembly's Economic Committee, there have been good features in reducing business problems and encouraging production and commerce. However, there are constraints, such as the sluggish implementation of support packages, most notably the 40 trillion VND 2% interest assistance package delivered through the banking sector.

This package, a mix of fiscal and monetary policy, sought to give 2% interest subsidies from the state budget to help companies recover from the Covid-19 epidemic. However, only roughly 60 trillion VND of assistance loans had been given by the end of August 2023, out of a projected 1 million trillion VND. This amounted to less than 800 billion VND for more than 2,100 clients, accounting for approximately 1.95% of the package's total cost.

According to Banking Academy Professor Dr. Tran Viet Dung, this amount is "very modest" in comparison to Resolution 43's early expectations. It was assessed impossible to distribute more than 98% of the remaining assistance package in less than three months (ending on December 31, 2023).

Due to the sluggish disbursement, it was suggested that this interest assistance package be redirected to social housing loans. This strategy, however, proved impractical. Decree 100/2015/ND-CP explicitly regulates specialized social housing loans for persons to acquire, rent, create, or modify social housing. In addition to the monies indicated in this decree, the government committed a significant budget for various assistance initiatives, with an emphasis on the social housing administration agency.

The abundance of finance available for social housing loans contrasts dramatically with the paucity of social housing supply in many areas. Many projects have been delayed, and rising building material prices have impacted project timetables.

Having Money but Can't Spend It

Several significant causes have contributed to the scenario in which monies are accessible but are not being used:

Limited Beneficiaries: Learning from the 2009 4% interest subsidy lesson, this round of interest support had a relatively narrow target audience. Many producers and businesses, especially those not officially registered, did not qualify for support.

Public Budget Source: The source from the State budget caused hesitation among both customers and banks due to concerns about scrutiny and potential reimbursement if the subsidized amount affected the company's profits and dividends.

Recovery Capability Criteria: The criteria stating "recovery capability" in Decree 31/2022/ND-CP made it challenging for banks to assess credit issuance. Evaluating recovery potential, especially amid global and domestic economic uncertainties, posed difficulties.

Lowered Interest Rates: Since the beginning of 2023, the government and State Bank of Vietnam reduced interest rates. Banks proactively lowered interest rates for existing and new loans, alongside numerous preferential lending programs. Businesses now prioritize capital access over interest rates.

A New Approach Needed

According to the current scenario, businesses primarily demand financing and prefer more direct forms of assistance such as tax exemptions, reductions, and deferrals. According to the National Assembly Economic Committee's report, initiatives such as tax and fee exemptions and reductions were implemented at a 94% rate, demonstrating their efficacy.

The government should use more direct support ways to address the problem. This might include providing direct financial assistance to individuals and companies. Support conditions and rules should be reduced and made more realistic, allowing firms to get simpler access to money. The emphasis should move to generating overall demand, hence increasing the need for loans in manufacturing and other operations.

Furthermore, with the issuance of Circular 06/2023/TT-NHNN on June 28, 2023, amending and supplementing certain provisions of the previous circular regarding credit activities of credit institutions (CIs), particularly the new provision for "debt flipping," formal access to loans for individuals and businesses has become more open, practical, and supportive. At the same time, competitive interest rates are now considerably more appealing than they were previously.

This audacious but essential step by the banking sector demands considerable thought and specific criteria. NHNN should conduct more research and develop new laws to facilitate a smooth and transparent transfer of collateral assets between CIs. Furthermore, NHNN rules should encourage CIs to broaden their product and service offerings, offering more competitive terms to suit new and realistic client demands.

In overall, overcoming the "having money but not spending it" contradiction requires a change toward more direct and practical assistance measures, regulatory simplicity, and a focus on generating total demand. Furthermore, recent novel rules, notably those concerning "debt flipping," should be successfully implemented, providing smooth and transparent procedures and therefore addressing policy bottlenecks. Policy should encourage more diversified and competitive banking goods and services, producing a more dynamic economic environment responsive to changing client requirements.